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Fresh From the Bench: Recent Patent Cases From the ‎Federal Circuit

January 16, 2015

Overview

Bard – In a split decision the Circuit affirms a willful infringement ruling against Gore that will add $205 million in enhanced damages to the $854 million that is already due Bard. Payments need to continue to be made at a rate of over $120 million per year until the patent expires in 2019.

Neurorepair – A malpractice lawsuit against patent prosecutor is remanded to district court with instructions to return the case to state court. The panel rules that the patent issues in the case are not "substantial," and that ‎a case of this type should be resolved in state court because of the strong interest states have in ‎regulating the conduct of their resident attorneys.‎

The patent in suit relates to prosthetic vascular grafts made of highly-expanded polytetrafluoroethylene ("ePTFE"), sold by Gore under its "Gore-Tex" trademark. In 2003, Bard and Dr. Goldfarb sued Gore. In 2007 a jury found the patent valid and willfully infringed, and it awarded $185 million in damages. Gore appealed the district court's denial of JMOL and the Circuit panel affirmed. The en banc Circuit denied review but granted rehearing "for the limited purpose of authorizing the panel to revise the portion of its opinion addressing willfulness." The panel accordingly vacated the parts of its opinion discussing willfulness and allowing enhanced damages and attorneys' fees. It held that as to the threshold determination of willfulness, "the objective determination of recklessness, even though predicated on underlying mixed questions of law and fact, is best decided by the judge as a question of law subject to de novo review." The panel remanded "so that the trial court may apply the correct standard to the question of willfulness in the first instance." On remand, the district court again found that it was "clear to this Court, just as it was to the jury, that Defendant, as a 'reasonable litigant,' could not have 'realistically expected' its defenses to succeed." Gore appeals that decision.

Standing

Initially, Gore argues that at the time of suit, neither Bard Peripheral Vascular nor Goldfarb had standing to sue for infringement, and that at the time the suit was filed, only C.R. Bard, Inc. could have possessed standing to sue. The panel rejects that argument, just as it did when Gore presented it in the first appeal. Gore's argument hinges on the absence of a written instrument transferring to BPV what it contends was the virtual assignment from Goldfarb to Bard Inc. However, BPV has never claimed that in 2003 it had all substantial rights to the patent. BPV's position is only that it was an exclusive licensee with the right to sue for infringement. It is well established that the grant of a license does not need to be in writing. In any event, in 1997 there was a memorialized transfer of the exclusive license from Goldfarb and Bard Inc. to BPV's predecessor. The panel agrees with the district court that this 1997 agreement between the parties settles BPV's right to sue at the time of the complaint as Goldfarb's exclusive licensee.

Willful Infringement

To establish willful infringement, the patentee has the burden of showing by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc), cert denied, 552 U.S. 1230 (2008). "The state of mind of the accused infringer is not relevant to this objective inquiry." Id. Only if the patentee establishes this "threshold objective standard" does the inquiry then move on to whether "this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer." While this second prong of Seagate may be an issue of fact, the threshold determination of objective recklessness requires "objective assessment" of the accused infringer's defenses. In the prior appeal, the panel held that objective recklessness, even though "predicated on underlying mixed questions of law and fact, is best decided by the judge as a question of law subject to de novo review." Even when underlying factual issues were sent to the jury in the first instance—such as in this case—"the judge remains the final arbiter of whether the defense was reasonable."

The panel reviews de novo the district court's determination whether Gore's position is susceptible to a reasonable conclusion of no infringement. Objective recklessness will not be found where the accused infringer has raised a substantial question as to the validity or noninfringement of the patent.

On remand, the district court evaluated several defenses raised by Gore and determined that none of them were objectively reasonable. Gore appeals only the determination as to Gore's inventorship defense. This defense arises from the decades-long record, which includes parallel examination of Gore's and Goldfarb's patent applications on vascular grafts made of ePTFE, an interference declared in 1983 between the applications, which we reviewed in Cooper I and Cooper II, as well as the infringement proceedings in this case that were finally resolved—except as to the issue of willfulness—in Bard I. Gore's argument is based on the fact that its employee, Peter Cooper, supplied the particular ePTFE tubing that Goldfarb used in making his successful vascular graft. In Gore's view, Cooper furnished the embodiment of the invention before Goldfarb conceived the invention using that embodiment.

As an initial matter, the majority rejects Gore's argument that the mere fact a member of the previous panel dissented on this issue indicates that its position was reasonable. In Paper Converting Machine Co. v. Magna-Graphics Corp., 785 F.2d 1013, 1016 (Fed. Cir. 1986), we noted that despite the existence of a dissenting opinion in a prior opinion affirming infringement, the same panel could still affirm willfulness in a later appeal. Otherwise, we would be imposing a rule that any single judge's dissent on the merits could preclude the determination of willful infringement.

Turning to the merits, Gore argues that even though it did not prevail in its argument that the patent is invalid for nonjoinder of Cooper as a co-inventor, its argument was still reasonable in light of the facts in the record and the law of joint inventorship. This is an unusual case. Forty years have passed since Goldfarb filed for the patent at issue in this case. Gore tried to get a patent on the subject matter of the patent on which it was sued. The subsequent decades of prior proceedings shaped what defenses Gore could raise once it was sued for infringement. Once it failed and the '135 patent issued, Gore was left with an exceptionally circumscribed scope of reasonable defense.

In the current proceedings, Gore relied on those facts which showed that the invention was based on a material that Gore invented, and that Cooper may have conceived of the invention prior to Goldfarb (though Goldfarb won the patent because he was the first to reduce it to practice). But even if it could have persuaded a jury—which it did not—Gore could not have evaded the legal requirements of joint inventorship. Ultimately, to have stood a reasonable chance of prevailing on this issue, Gore needed to raise new evidence or theories that were not considered in Cooper I and II. However, as the prior panel noted, "Gore's argument remains unchanged and there is still no evidence that Cooper either recognized or appreciated the critical nature of the internodal distance and communicated that key requirement to Goldfarb before Goldfarb reduced the invention to practice." Within the backdrop of the extensive proceedings prior to this litigation, therefore, the majority agrees with the district court that Gore's position was not susceptible to a reasonable conclusion that the patent was invalid on inventorship grounds.

Judge Newman reviews the history of the case and the evidence and concludes that Gore raises several substantial questions challenging the validity and enforceability of the patent. "On the entirety of the premises and applying the correct legal standards, the judgment of willful infringement cannot stand."

With respect to damages, she notes that the district court's recognition of the public's interest and medical benefits imparted by Gore's product, and the court's refusal to enjoin its provision, cannot be reconciled with the punitive doubling of damages. There was no showing, or even a charge, of intentional harm, as required for severe punishment as here meted out. Thus, regardless of whether willfulness was a supportable ruling, the doubling of the damages award is untenable. "From my colleagues' contrary ruling, I respectfully dissent."

Neurorepair, Inc. v. The Nath Law Group and Robert P. Cogan and Does 1-20,Fed. Cir. Case 2013-1073 (January 15, 2015)

NeuroRepair retained Cogan, a patent attorney with The Nath Law Group, to prosecute certain patent applications. When relations between the two soured, NeuroRepair sued Cogan and his firm for malpractice, alleging negligence, breach of fiduciary duty, breach of written and oral contract, breach of implied covenant of good faith and fair dealing, negligent misrepresentation, and false promise. Defendants removed the case to federal court on the ground that it was "a civil action relating to patents." After the district court entered judgment in defendants' favor, NeuroRepair appealed, challenging the district court's subject matter jurisdiction.

The question of whether jurisdiction is proper is to be decided under the recent Gunn v. Minton, 133 S. Ct. 1059 (2013) case. No claim of diversity jurisdiction was ever raised; therefore, the sole alleged basis for jurisdiction was whether the malpractice case invoked federal question jurisdiction under 28 U.S.C. § 1338, requiring that the complaint establishes that "t he plaintiff's right to relief necessarily depends on resolution of a substantial question of federal patent law." Christianson v. Colt Industries Operating Corp.,486 U.S. 800 (1988). The Circuit is empowered to decide this issue for itself under C.R. Bard, Inc. v. Schwartz, 716 F.2d 874 (Fed. Cir. 1983).

The issue of jurisdiction is reviewed de novo to determine whether federal subject-matter jurisdiction would exist over this case had it originally been filed in federal court. In this review, the Circuit applies the guidance established by Gunn v. Minton, in which the Court made clear that state law legal malpractice claims will "rarely, if ever, arise under federal patent law," even if they require resolution of a substantive question of federal patent law. The Supreme Court emphasized that because of the backward-looking nature of a legal malpractice claim, the question is posed in a merely hypothetical sense and that no matter how the state courts resolve that hypothetical "case within a case," it will not change the real-world result of the prior federal patent litigation. In view of the absence of a question that was "significant to the federal system as a whole" and the "especially great" state interest in regulating lawyers, the Court concluded that Congress had not intended to bar state courts from deciding state legal malpractice claims simply because they may involve an underlying hypothetical patent issue.

In Gunn, the Court invoked the test established in Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing, 545 U.S. 308 (2005), which establishes that a cause of action created by state law may nevertheless "arise under" federal patent law within the meaning of 28 U.S.C. § 1338(a) if it involves a patent law issue that is "(1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress."

Applying this test, the Circuit concludes that NeuroRepair's suit would not "necessarily raise" issues of patent law because its various claims were each created by state, not federal, law. Therefore, a patent law issue would be necessarily raised only if it is a necessary element of one of the well-pleaded claims. Because NeuroRepair's complaint sets forth multiple bases in support of its allegation of negligence, a court couldfind NeuroRepair is entitled to relief based on this allegation without ever reaching a patent law issue. Therefore, it would not necessarily require the application of patent law to the facts of this case for NeuroRepair to prevail on its legal malpractice claim because not every legal theory supporting the claim required the resolution of a federal issue. NeuroRepair could prevail on its remaining six causes of action under alternate bases that do not necessarily implicate an issue of substantive patent law.

The Circuit acknowledged that at least one patent law issue is actually disputed by the parties: whether the patent could have issued earlier and with broader claims but for defendants' delay and mishandling of the patent prosecution. However, the Circuit found that even if the disposition of this matter necessarily required the resolution of patent law issues, those issues would not be of sufficient importance "to the federal system as a whole," as required under the third part of the Gunn test. This will always be true where a state claim necessarily raises a disputed federal issue.

To decide whether the existing patent issue was sufficiently important, the Circuit considers three factors described in Grable and Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677 (2006). A substantial federal issue is more likely to be present if: 1) a pure issue of federal law is dispositive of the case; 2) if the court's resolution of the issue will control numerous other cases; and 3) the Government has a direct interest in the availability of a federal forum to vindicate its own administrative action.

The Circuit concludes NeuroRepair's suit did not involve a pure issue of federal law, but, at most, a question of federal law as only one of several elements. The Circuit found other issues at play in the case more significant, including causes of action related to alleged overbilling, failure to deliver work product, and misrepresentation of Cogan's expertise in neuroscience. Moreover, this case is unlikely to control other cases, particularly because of the fact-specific nature of a malpractice claim. The Circuit expressly rejected the scenario proposed by defendants that a third-party infringer could conceivably be found liable for infringing a patent that its own state court previously found to be unpatentable if the state court adjudicates the case. The Circuit noted that a state court case-within-a-case decision would not control a later federal court case and that the state court decision here could neither affect a live patent nor require resolution of a novel issue of patent law. Accordingly, it could not control numerous other cases or impact the federal system as a whole.

The Circuit also concludes that defendants failed to establish that the government has a direct interest in the availability of a federal forum to vindicate its own administrative action. Instead, the Circuit concludes that if cases such as NeuroRepair's were heard in federal court, it would disrupt the federal-state balance, and that the resolution by federal courts of attorney malpractice claims that do not raise substantial issues of ‎federal law would usurp the important role of state courts in regulating the practice of law within their ‎boundaries.‎ Concluding that the issues in this case are fact-specific, resolution by a state court would not have broad implications on other cases and would not bind later federal court decisions, and that state courts have a strong interest in regulating the conduct of their resident attorneys, the panel declines to find that federal jurisdiction arises under federal patent law within the meaning of 28 U.S.C. § 1338(a), and remands the case with instructions to remand the case to the California state court.